Kentucky Taxes

The Kentucky Department of Revenue collects many different taxes that are legislatively mandated. A short description of these various taxes are outlined below.

Affordable Housing Trust Fund Fee

(KRS 64.012)(Effective Aug. 1, 2006)—Collected by agreement between DOR and the Kentucky Housing Corporation, $6 of each $12 fee imposed on the recording with the county clerk of a 1) Deed of trust or assignment for the benefit of creditors; 2) Deed; 3) Real estate mortgage; 4) Deed of assignment; 5) Real estate option; 6) Power of attorney; 7) Revocation of power of attorney;8) Lease which is recordable by law; 9) Deed of release of a mortgage or lien under KRS 382.360;10) United States lien; 11) Release of a United States lien;12) Release of any recorded encumbrance other than state liens; 13) Lis pendens notice concerning proceedings in bankruptcy;14) Lis pendens notice; 15) Mechanic’s and artisan’s lien under KRS Changer 376; 16) Assumed name; 17) Notice of lien issued by the IRS; 18) Notice of lien discharge issued by the IRS; 19) Original, assignment, amendment, or continuation financing statement; 20) Making a record for the establishment of a city, recording the plan or plat thereof, and all other service incident; 21) Survey of a city, or any part thereof, or any addition to or extensions of the boundary of a city; 22) Recording with statutory authority for which no specific fee is set, except a military discharge; and 23) Filing with statutory authority for which no specific fee is set shall be paid to the affordable housing trust fund established in KRS 198A.710 and shall be remitted by the county clerk.

Agricultural Products

• In Hands of Producer or Agent (KRS 132.020(1)(e), 132.200(6)) 1.5 cents (per $100 of assessment). State rate only.• Tobacco Not at Manufacturer’s Plant (Storage)–(KRS 132.020(1)(d), 132.200(6)) 1.5 cents (per $100 of assessment). Also subject to county and city rates.• Other Agricultural Products Not at Manufacturer’s Plant (Storage) (KRS 132.020(1)(e), 132.200(6)) 1.5 cents (per $100 of assessment). Also subject to county and city rates.

Aircraft

• Not used in the Business of Transporting Person or Property for Compensation or Hire (KRS 132.020(1) (p), 132.200(18)) 1.5 cents (per $100 of assessment). Local option.• For Hire Non-Public Service Company (KRS 132.020(1) (r)) 45 cents (per $100 of assessment). Subject to full local rates.• Public Service Company Aircraft (KRS 136.120, KRS 136.180(3)) Subject to annual adjustment. Multiplier applied to local rates and subject to annual adjustment.

Alcoholic Beverage Wholesale Sales Tax

(KRS 243.884) 11 percent of wholesale sales of distilled spirits, wine and malt beverages. A wholesale sales tax on alcoholic beverage wholesalers/distributors to be reported monthly. There are statutory exemptions.

Bank Franchise Tax

(KRS 136.500 et seq.) 1.1 percent of net capital. Minimum tax is $300 per year. Tax is imposed on every financial institution regularly engaged in business in Kentucky at any time during the calendar year. A financial institution is presumed to be regularly engaged in business in Kentucky if during any taxable year it obtains or solicits business with 20 or more persons within Kentucky, or if receipts attributable to sources in Kentucky equal or exceed $100,000. Tax is in lieu of all city, county and local taxes except for the real estate transfer taxes, real property and tangible personal property taxes upon users of utility services and the local deposit franchise tax.

Beer Consumer Tax

(KRS 243.720 et seq.) $2.50 per barrel of 31 gallons. An excise tax imposed on distributors or retailers of malt beverages who purchase malt beverages directly from a brewer. There are statutory exemptions and credits. There is a 50 percent discount for domestic brewers up to 300,000 barrels per annum.

Cigarette Enforcement and Administration Fee

(KRS 365.390) 0.001 cent per pack (rate subject to change annually). Fee paid by cigarette wholesalers and unclassified acquirers to provide for the expenses of the DOR in administering the cigarette tax law.

Cigarette Excise Tax

(KRS 138.130 et seq.) 3 cents per 20 cigarettes, proportioned for other quantities. An excise tax on cigarettes paid by resident and nonresident wholesalers and unclassified acquirers. The tax is paid by purchasing stamps within 48 hours after cigarettes are received by a resident wholesaler. The unclassified acquirer pays the tax by purchasing and affixing stamps within 24 hours of receipt of the cigarettes. A nonresident wholesaler must affix the tax stamps prior to importing them into Kentucky.

Cigarette Inventory Floor Stocks Tax

(KRS 138.143) $0.27 per 20 cigarettes. A one-time surtax on cigarette inventory on hand at 11:59 p.m. on May 31, 2005.

Cigarette Licenses

(KRS 138.195) Resident wholesaler—$500; Nonresident wholesaler—$500; Subjobber—$500; Vending machine operator—$25; Transporter—$50; Unclassified acquirer—$50. Annual license fee imposed upon various dealers and handlers of cigarettes. More than one license may be required by the DOR for any dealer or handler depending upon the diversity of his business and the number of established places of business.

Cigarette Paper Tax

(KRS 138.140(6)(Effective June 1, 2006) $0.25 per 32 sheets of cigarette papers or proportionally for units other than 32 sheets. This tax is paid by the wholesaler.

Cigarette Surtax

(KRS 138.140) $0.27 per 20 cigarettes, proportioned for other quantities. A surtax on cigarettes paid concurrently with the cigarette excise tax at the time of stamp purchases. A portion is allocated to cancer research.

Coal Severance Tax

(KRS 143.010, 143.020 et seq.) 50 cents per ton minimum or 4.5 percent of gross value. (the minimum tax shall not apply to a taxpayer who only processes coal.) Tax is based on the gross value of coal severed and/or processed in Kentucky. Partial exemptions from the tax may apply to newly permitted production from thin seam.

Controlled Substance Tax

(KRS 138.870 et seq.) $3.50 per gram on marijuana, loose. $1,000 per marijuana plant. $200 per gram controlled substance by weight. $2,000 per 50 dosage units of controlled substance. Growers, sellers, dealers, buyers and manufacturers must obtain a tax stamp to affix to the product. Commonwealth’s or county attorneys who obtain a conviction of, or guilty or Alford plea from an offender must notify the DOR if the product which was the subject of the conviction or plea does not bear the tax stamp.

Corporation Tax

(KRS 141.010 et seq., 155.170) For tax years beginning on or after Jan. 1, 2005 and before Jan. 1, 2007, corporation means a C corporation, S corporation, Limited Liability Company (LLC), Professional Limited Liability Partnership (PLLP), Limited Partnership (LP), Limited Liability Partnership (LLP), Real Estate Investment Trust (REIT), Regulated Investment Company (RIC), Real Estate Mortgage Investment Conduit (REMIC), Finance Asset Securitization Investment Trust (FASIT), or similar entities created with limited liability for the partners, members or shareholders. Corporation tax is the greater of the tax computed based on net income; alternative minimum calculation (AMC); or $175. Corporation income tax rates: first $50,000 of net income—4 percent; next $50,000—5 percent; and all over $100,000—7 percent. The AMC is the lesser of $0.095 per $100 of a corporation’s Kentucky gross receipts, or $0.75 per $100 of a corporation’s Kentucky gross profits. For tax years beginning on or after Jan. 1, 2006, if gross receipts or gross profits from all sources are $3 million or less, no AMC is due. Also, marginal AMC tax relief is provided if gross receipts or gross profits from all sources are in excess of $3 million, but less than $6 million. For taxable years ending on or after Dec. 31, 1995, and before Dec. 31, 2005, KRS 141.200 allows an affiliated group to elect to file a consolidated Kentucky income tax return with the election binding for 96-consecutive calendar months. KRS 141.200 prohibits affiliated groups from filing a combined Kentucky corporation income tax return using the unitary business concept.For tax years beginning on or after Jan. 1, 2005, an affiliated group of corporations must file a nexus consolidated return as provided by KRS 141.200.For tax years beginning on or after Jan. 1, 2007 all pass-through entities will be treated the same for Kentucky income tax purposes as they are treated for federal income tax purposes, except for differences between Kentucky law and federal law. The AMC was repealed and a new limited liability entity tax (LLET) is imposed on every corporation and limited liability pass-through entity doing business in Kentucky. “Corporation means “corporation” as defined in Section 7701(a)(3) of the Internal Revenue Code.The LLET is the greater of $175 or the lesser of $0.095 per $100 of a corporation’s or pass-through entity’s Kentucky gross receipts, or $0.75 per $100 of a corporation’s or pass-through entity’s Kentucky gross profits.For tax years beginning on or after Jan. 1, 2007, if gross receipts or gross profits from all sources are $3 million or less, a $175 minimum payment is due. Also, marginal LLET tax relief is provided if gross receipts or gross profits from all sources are in excess of $3 million, but less than $6 million.An individual that is a partner, member or shareholder of a limited liability pass-through entity is allowed an LLET credit against the income imposed by KRS 141.020 equal to the individual’s proportionate share of LLET computed on the gross receipts or gross profits of the limited liability pass-through entity as provided by KRS 141.0401(2), after the LLET is reduced by the minimum tax of $175 and by any other credits for which the limited liability pass-through entity may be allowed.The credit allowed a corporation or individual that is a partner, member or shareholder in a limited liability pass-through entity shall be applied only to the income tax assessed on the corporation’s or individual’s proportionate share of distributive income from the limited liability pass-through entity as provided by KRS 141.0401(3)(a) and KRS 141.0401(3)(b), respectively. Any remaining credit shall be disallowed and shall not be carried forward to the next year.A corporation that is a partner or member of a limited liability pass-through entity is allowed a LLET credit against the income tax imposed by KRS 141.040 equal to the LLET computed on its gross receipts or gross profits as provided by KRS 141.0401(2)(c), after the LLET is reduced by the minimum tax of $175 and by any other credits for which the corporation may be allowed. Corporation income tax rates: first $50,000 of net income—4 percent; next $50,000—5 percent; and all over $100,000—6 percent.

Distilled Spirits

(KRS 132.020(1)(n), 132.097, 132.099, 132.180 and 132.200(4)) Except for inventories qualifying for goods in transit to an out-of-state destination within six months and certain products in course of manufacture, subject to 5 cents (per $100 of assessment) state rate and full local rates.

Distilled Spirits and Wine Consumer Taxes

(KRS 243.720 et seq.) Distilled spirits containing over 6 percent alcohol by volume: per gallon—$1.92; per liter—0.5069; distilled spirits containing 6 percent or less alcohol by volume: per gallon—$0.25; per liter—0.0660; wine—per gallon—$0.50; per liter—0.1320.(Proportionate amount charged on smaller quantities, but not less than 4 cents on any retail container of wine.)Excise tax imposed upon the use, sale or distribution by sale or gift of distilled spirits and wine. There are statutory exemptions.

Distilled Spirits Case Sales Tax

(KRS 243.710) 5 cents per case. Excise tax on distilled spirits sold by wholesalers to retailers in Kentucky.

Farm Machinery Used in Farming

Goods Held for Sale in the Regular Course of Business

Health Care Provider Tax

(KRS 142.301 to 142.359) (Effective July 1, 2006) 2.5 percent of gross receipts for hospital services for facilities not in operation during FY06. For facilities in operation during FY06, the monthly tax is one-twelfth of the total paid during FY06; 2 percent of gross receipts for home health agency services; 5.5 percent of gross receipts for Medicaid managed care services, ICF/ MR services, and support for community living services; $1.50-$10.75 per non-Medicare patient bed day for nursing facilities services. Effective July 1, 1993, a provider tax is imposed on providers of taxable medical services. Registration is required prior to the beginning of operations.

Individual Income Tax

(KRS 141.010 et seq.) First $3,000—2 percent; Next $1,000—3 percent; Next $1,000—4 percent; Next $3,000—5 percent; next $67,000—5.8 percent. In excess of $75,000—6 percent. Graduated tax upon an individual’s taxable income. Residents must pay on their entire taxable income. Nonresidents must pay on that portion of their income attributable to Kentucky sources. Fiduciaries must pay on that portion of income of an estate or trust not distributed or distributable to beneficiaries. Tax base is the federal adjusted gross income adjusted for differences in Kentucky and federal laws, including U.S. government bond interest, limited pension/retirement income exclusion, Social Security benefits and Railroad Retirement Board benefits and deductions for long-term care and health insurance premiums. Taxable income is computed by using the standard deduction or Kentucky itemized deductions. Tax credits include personal credits of $20, child and dependent care, family size and various business credits. Standard deduction: 2007—$2,050 and 2008—$2,100.

Inheritance and Estate Taxes

(KRS 140.010 et seq.) Inheritance tax— 4–16 percent; The Kentucky inheritance tax is a tax on the right to receive property upon the death of another person. The rate of tax and the exemptions allowed depend on the legal relationship of the beneficiary to the decedent. If the date of death is after June 30, 1998, the following list of beneficiaries are exempt from paying inheritance tax: (1) Surviving spouse, parent; (2) Child (adult or infant)—child by blood, stepchild, child adopted during infancy, or a child adopted during adulthood who was reared by the decedent during infancy; (3) Grandchild—issue of child by blood, stepchild, child adopted during infancy, or of a child adopted during adulthood who was reared by decedent during infancy; (4) Brother, sister (whole or half). Estate tax— Beginning in 2005, the state death tax credit was replaced by a deduction for state death taxes paid until the repeal of the federal estate tax in 2010. Therefore, the Kentucky estate tax is effectively repealed for the estates of decedents who die after Dec. 31, 2004.

Leasehold Interest

Legal Process Taxes

(KRS 142.010 et seq.) (Effective Jan. 1, 2007) Conveyances of real property (deeds) - $4; mortgages, financial statements and security agreements - $4; marriage licenses*- $4.50; powers of attorney to convey real or personal property - $4; lien or conveyance of coal, oil, gas or other mineral right or privilege - $4. Taxes imposed on the filing of an instrument subject to tax or the issuance of a marriage license. Collected by county clerk. * A $10 Spouse Abuse Shelter Fund fee levied on marriage licenses by KRS 209.160 is, by agreement between the DOR and the Cabinet for Health and Family Services, also reported and paid to the DOR by county clerks as part of the monthly report of legal process taxes due.

Livestock and Poultry

Loaner-Rental Tax

(KRS 138.460 & KRS 138.4605) Loaner- Rental tax is paid by a dealer who is regularly engaged in the servicing or repair of motor vehicles and loans or rents a motor vehicle to a retail customer while the customer’s motor vehicle is at the dealership for repair or service. Dealers must make application to be in the program. Upon acceptance into the program, the dealer will be required to file a monthly return and remit $25 per vehicle for as long as the vehicle is used as a Loaner-Rental. A vehicle log must be maintained by the dealer; loan/rental dates, mileage in and out, customer names and description of repairs completed for the customer.

Manufacturing Machinery

Motor Fuels Tax—Gasoline

(KRS 138.210 et seq.) 9 percent of average wholesale price of gasoline, but not less than 12.1 cents per gallon. Rate is determined quarterly. A 5 cent per gallon Supplemental Highway User Motor Fuel Tax also applies. It is an excise tax paid by licensed dealers on all gasoline received in this state. There are statutory provisions for tax credits and partial or full tax refunds for designated users.

Motor Fuels Tax—Liquefied Petroleum Gas

(KRS 234.310 to 234.440) Variable rate same as gasoline. The 5 cent per gallon supplemental tax also applies to liquefied petroleum gas. An excise tax paid by licensed dealers on all liquefied petroleum motor fuel withdrawn to propel motor vehicles on the public highways, unless the carburetion system has been approved by the Environmental and Public Protection Cabinet.

Motor Fuels Tax—Petroleum Storage Tank Environmental Assurance Fee

(KRS 224.60-145) 1.4 cents per gallon. A petroleum storage tank environmental assurance fee is levied on all taxable gasoline and special fuel reported in this state by licensed dealers. There are provisions for exemptions or refunds for qualifying gasoline or special fuels not to be used on the public highways.

Motor Fuels Tax—Special Fuels

(KRS 138.210 et seq.) Variable rate same as gasoline. A 2-cent per gallon Supplemental Highway User Motor Fuel Tax also applies. An excise tax is levied on all special fuels received in this state by licensed dealers. There are statutory provisions for tax credits and partial or full tax refunds for designated users.

Motor Vehicle Tire Fee

(KRS 224.50-868) $1 per tire sold at retail. Applies to the retail sale of new motor vehicle tires sold in Kentucky. Does not apply to new cars brought into the state for sale or use. Sales of recapped tires are exempt from the fee.

Motor Vehicle Usage Tax

(KRS 138.450 et seq.) 6 percent of the consideration given or retail value as defined in KRS 138.450. Value is dependent on the type of transaction. Optional tax payment method available for U-Drive-It operators based on 6 percent of the gross rental or lease charges. Tax imposed on new and used motor vehicles when registered for the first time in this state and when ownership is transferred. There are statutory exemptions and credits. Regular usage tax payments are made to the county clerk and forwarded to the DOR. U-Drive-It usage tax payments are made directly to the Transportation Cabinet on a monthly basis.

Other Tobacco Products Tax

(KRS 138.140(4)) (Effective August 1, 2005) 7.5 percent of the gross receipts from the wholesale sale of other tobacco products.

Pollution Control Facilities

Public Service Commission Assessment

(KRS 278.130 et seq.) 1.603 mills (subject to change annually up to 2 mills). Maximum assessment—2 mills; Minimum assessment—$50. Assessment imposed annually on utility companies under the jurisdiction of the Public Service Commission based on proportionate share of gross intrastate revenues by each company.

Public Warehouses

Goods held for sale except goods in transit. (KRS 132.020(1)(n))—5 cents (per $100 of assessment). Subject to local rates. Goods in Transit to an out-of-state destination within six months. (KRS 132.097, 132.099) Exempt from state, county, school and city tax. Special taxing districts only may levy a rate.

Race Track Admission Tax

(KRS 138.480 et seq., 139.100(2)(c)) Tracks under jurisdiction of the Kentucky Horse Racing Authority—15 cents/person. Excise tax on each paid admission to race track. There are statutory exemptions. Reported and paid within 30 days of end of each race meeting. Race track admission tax is in lieu of sales tax.

Race Track License Tax

(KRS 137.170 et seq.) License tax imposed upon the operation of a track at which horse races are run under the jurisdiction of the Kentucky Horse Racing Authority. Reported and paid within 30 days of end of each race meeting. An annual recapitulation report is due on or before December 31 each year for the race year ended November 30.

Race Track Pari-Mutuel Tax

(KRS 138.510 et seq.) 3.5 percent of total wagered at all thoroughbred tracks under Kentucky Horse Racing Authority jurisdiction with average daily handle of $1.2 million or more; 1.5 percent if average daily handle is less than $1.2 million.3.75 percent of total wagered at all standardbred tracks under Kentucky Horse Racing Authority jurisdiction with average daily handle of $1.2 million or more; 1.75 percent if average daily handle is less than $1.2 million.3 percent of telephone account wagering and the total wagered at receiving tracks. Excise tax is imposed on every person, corporation or association that operates a horse race track at which betting is conducted.Excise tax is also imposed on receiving tracks participating in intertrack wagering on simulcast races. Average daily handle is computed from the amount wagered at the host track, excluding money wagered at receiving tracks and all telephone account wagering.A portion of the pari-mutuel tax is allocated to the following:• Equine Drug Research;• Equine Industry Program;• Higher Education Equine Trust and Revolving Fund;• Thoroughbred Development Fund; and• Standardbred, Quarterhorse, Appaloosa and ArabianDevelopment Fund Reported and paid weekly.

Rural Cooperative Annual Tax

Sales and Use Taxes

(KRS 139.010 et seq.) Sales tax—6 percent; Use tax—6 percent. Sales tax is imposed on the retailer for the privilege of making retail sales of tangible personal property or taxable services within Kentucky. (KRS 139.200) Use tax is imposed on the use, storage or other consumption in the state of tangible personal property purchased for use, storage or other consumption in this state. (KRS 139.310) Vendor’s compensation is allowed up to $50 per timely filed and paid return. Deduct 1.75% of the first $1,000 and 1.5% of the amount in excess of $1,000. There are statutory exemptions.

Snuff Tax

(KRS 138.140(5)) Effective August 1, 2005, $0.095 per unit of snuff sold. A unit is defined as a hard container containing no more than 1 1/2 ounce of snuff. This tax is paid by the wholesaler.

Tangible Property Not Elsewhere Specified

Telecommunications Tax

(KRS 136.600–136.600) The telecommunications excise and gross revenues tax became effective Jan. 1, 2006. The telecommunications excise tax is imposed at the rate of 3 percent on the retail purchase of multi-channel video programming services. The telecommunications gross revenues tax is imposed at the rate of 2.4 percent of gross revenues received for the provision of multi-channel video programming services and at the rate of 1.3 percent of gross revenues received for the provision of communications services. The rates and tax computations are reported on one return that is due by the 20th day of the month following the end of the reporting period.Vendor’s compensation is allowed up to $1,500 per timely filed and paid return for the excise tax portion of the telecommunications tax return. Deduct 1.75% of the first $1,000 and 1% of the amount in excess of $1,000.

Transient Room Tax

(KRS 142.400 et seq.) 1 percent of rent. A tax on every occupancy of any suite, room, rooms or cabins charged by all persons, companies, corporations, groups or organizations doing business as motor courts, motels, hotels, inns, tourist camps or like or similar accommodations businesses. The receipts from this tax are used for the tourism, meeting and convention marketing fund.

Trucks and Tractors-Interstate

(KRS 136.188, 132.487, 132.760) Subject to annual ad valorem fee as of Jan. 1, 2007. Fee subject to annual adjustment. State and local fees are collected by Department of Transportation and distributed by DOR. Buses and nonapportioned KY registered vehicles are subject to KRS 132.487. Semi-trailers of interstate motor carriers are exempt.

Unmined Coal, etc. same as for real estate.

Unmined Coal, Oil and Gas Reserves and Other Mineral or Energy Resources Held Separately from Surface RealProperty (KRS 132.820)Adjusted annually (by July 1) per KRS 132.020(8). The state real estate rate was 12.4 cents for 2007, 12.8 cents for 2006, 13.1 cents for 2005, 13.1 cents for 2004 (per $100 assessments). Full local rates.

Utility Gross Receipts License Tax

(KRS 160.613, 160.6131, 160.614, 160.6145, 160.615, 160.6151, 160.6152, 160.6153, 160.6154, 160.6155, 160.6156, 160.6157, 160.6158, 160.617) The rate is determined by each school district, but cannot exceed 3 percent. Utility gross receipts license tax for schools is assessed on gross receipts derived from the furnishing of utility services and/or cable and direct broadcast satellite services within a school district. The service provider collects the tax based on the rate established by the local authority. The service provider or Energy Direct Pay holder submits payment to the DOR with a breakdown of the tax collected by school district. The DOR captures the district information and the corresponding tax collections and distributes the amount to the appropriate school district.